ORDER
C.N.B. Nair, Member (T)
1. Heard both sides and perused the record.
2. the first appellant M/s Oswal Woollen Mills is a manufacturer of yarn. It sold yarn manufactured by it to the second appellant, M/s Vanaik Spinning Mills ltd. The yarn was converted into multi folded yarn, paced and disposed of by the second appellant. Part of the multi fold yarn was sold to M/s Oswal Woollen Mills also.
3. Under the impugned order, it has been held that the appellants were carrying out a circular transaction for the purpose of evasion of excise duty. The finding is that the first appellant sent undervalued yarn to the second appellant who returned it at a low price to the first appellant. It has been held that as a result of such under valued transactions there was a duty evasion of about Rs. 1.7 Crores during the period January 2002 to march 2004. The impugned order has proceeded to demand the duty short levied as well as to impose penalties on both the appellants. There are also findings that the second appellant is accessory for tax evasion. This finding is based on the fact that some of the share holders of the second appellant are related to the Directors of first appellant.
4. The submission of the ld. Counsel for the appellants is that the finding is the result of gross mis-understanding of facts. It is being pointed out that the first appellant is a large manufacturer of yarn and only a small portion of the yarn so manufactured is sold to the second appellant. The ld. Counsel emphasized that there is no allegation that the sale to the second appellant was at a lower price than the sale to other parties, so as to justify a finding that sale of yarn by the first appellant to the second appellant in the first instance was under valued. It is also being pointed out that out of the multi-folded yarn produced by the second appellant, only a part was being sold back to the first appellant. It is being pointed out that during the period in question, the percentage of yarn so bought back by the first appellant varied from about 8% to 45%. The submission of the ld. Counsel is that since most of the multi-folded yarn was being sold by the second appellant to parties other than the first appellant, and in the absence of the finding that those sale prices are higher than the sale prices to the first appellant, the finding does not have any factual basis at all. The ld. Counsel would also highlight that by buying a back only a small portion of the yarn, the first appellant would not be able to recover the loss resulting from the undervalued sale of yarn to the second appellant.
5. Another point being emphasized is that during most of the period in question (2002-2003), multi folded yarn was exempt from duty and, therefore, the appellants did not stand to gain from the alleged undervalued circular transaction.
6. The ld. Counsel also has a submission that both the manufacturing units are limited companies of long standing and, therefore, their separate identities cannot be denied by the tax authorities.
7. The allegation is essentially that of under valuation of goods. In the facts of the case, we find that an allegation of under valuation of transactions is not viable. Firstly, because the first appellant was selling only a part of its produce to the second appellant and Revenue has no case that the sale prices were at a price lower than the price charged from other parties. Secondly, M/s Vanaik spinning Mills Ltd. Was selling majority of its produce to parties other than the first appellant. There is no allegation that those sale prices were higher than the sale price to the first appellant. It also does not stand to reason that an assessee would sell bulk of its produce at undervalued prices to a party so as to benefit from undervalued return of about 40% of its sales. Thus, the finding regarding undervalued Circular transactions and evasion of duty do not fit in with the facts of the case.
8. The allegation of circular transactions to evade duty is also not viable inasmuch as during most of the period the multi folded yarn remained exempt from Central Excise duty.
9. We do not consider it necessary to go into the allegation regarding both the parties being related, In view of the above finding that the allegation of undervaluation is not sustainable.
10. In the result, the appeals are allowed with consequential relief, if any, to the appellant.
(Dictated & pronounced in open Court)
